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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Year Ended December 31, 1998 Commission File No. 1-12462
TRI-LITE, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-2515309
- ---------------------------------------- ---------------------
(State of incorporation or organization) (IRS Employer ID No.)
2701 Junipero Street
Signal Hills, California 90806
(Address of principal executive offices)
(562) 426-8622
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common stock, no par value Not Applicable
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 13, or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and has been subject to such filing
requirements for the past 90 days.
YES______ NO__X___
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES__X___ NO_____
Aggregate market value of Common Shares held by non-affiliates on
March 31, 1999: Undetermined
Number of Common Shares Outstanding on
March 31, 1999: 4,928,948
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Part I
Item 1. Business
(a) General development of business
Tri-Lite, Inc., was incorporated in 1988 under the laws of the Commonwealth
of Pennsylvania. As used in this report, the terms "Company", "Tri-Lite" and
"Registrant" refer to Tri-Lite, Inc. and subsidiaries.
The Company completed an initial public offering of its common stock in
October, 1993. The Company's shares were listed on the American Stock Exchange
under the symbol "NRG" until February 26, 1996 when they were delisted. The
Company's shares are anticipated to trade in the immediate future, on the
over-the-counter market.
Subsequent to December 31, 1995, the Company, it's operating divisions and
it's wholly owned subsidiaries experienced material changes in the mode of
conducting their respective businesses. The following chronology of events will
provide the basis for explaining the present status of the Company and its
remaining operating subsidiaries (Self Powered Lighting, Inc. and Aim Energy,
Inc.).
On February 26, 1996, Tri-Lite, Inc., (the "Debtor") filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code (Case No. SA
96-12049 JR), U.S. Bankruptcy Court, Central District of California and on
March 22, 1996 Self Powered Lighting, Inc. (SPL) also filed a voluntary petition
under Chapter 11 of the United States Bankruptcy Code (Case No. SA 96-13178 JR),
Central Distirct of California. On January 16, 1997, the Court confirmed the
Company's plan of reorganization. The Company's approved plan of reorganization
was based upon Helionetics, Inc. and Ms. Susan Barnes acting as its
co-proponents. In April 1997, Helionetics also filed a voluntary petition under
Chapter 11 of the Bankruptcy Code (Case No. SA 97-14645 JR) with the U.S.
Bankruptcy Court, Central District of California. As a result, the funding of
the Company's reorganization plan was combined with that of Helionetics
bankruptcy plan, which included the provisions and methodology to fund the
Company's plan. In addition, due to Helionetics creditors under its plan, the
pay-out to the Company's creditors was negatively affected. The confirmation
hearing for the Chapter 11 Liquidating Plan of Helionetics, Inc. held on
November 24, 1998 was approved by the U.S. Bankruptcy Court on December 23,
1998. Provisions of the Combined Plans included the following:
o The Company issued 87.5% (5% of which was issued to the Helionetics
Committee of Unsecured Creditors (Helionetics Committee) pursuant to a
settlement agreement reached between the Helionetics Committee, the Company,
Susan Barnes and an affiliate) of the Company's "new" common stock to Ms. Susan
Barnes, as its co-proponent of the Company's plan of reorganization, and in
exchange for her agreement to forgo any claims on her approximately $4.3 million
secured claim against Helionetics, Inc. The shares are exempt from registration
requirements under the 33 Act pursuant to the exemption provided by Section 1145
of the Bankruptcy Code.
o The Company's unsecured creditors will receive up to 47% of their allowed
claims in cash as a result of the combined plan with Helionetics. The approved
reorganization plan of the Company called for a 70% pay-out to the unsecured
creditors. The payout is subject to the final determination of the Helionetics
own plan of reorganization . The plan required an initial payment to the
unsecured creditors of approximately 30% of the approved pay-out. However, only
approximately $426,700 initial payment was made in May 1997. Ms. Barnes provided
the funds for this initial payment.
o Helionetics contributed to the Company its interest (87.5%) in Aim
Energy, Inc.
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o The Company will issue on a pro rata basis to its existing shareholders
(Class 6 claimant) 12.5% of its "new" common stock in exchange for their
existing "old common shares" outstanding totalling 3,069,332 (which exclude the
shares of 2,937,422 and 32,579 in the name of Helionetics and Susan Barnes,
respectively). The new shares to be issued are exempt from registration pursuant
to exemption provided by Section 1145 of the Bankruptcy Code.
o Under the approved plan of reorganization of Self Powered Lighting, Inc.,
all creditors of SPL will receive 100% of their allowed claims within 60 months
from its effective date and the Company will retain its 100% interest in SPL.
o Helionetics canceled and released its claim against the Company for
$1,800,000 note receivable secured by all assets of the Company.
o The Company issued two secured promissory note; a $800,000 senior note in
favor of the Helionetics Committee and a $500,000 junior note in favor of Ms.
Susan Barnes at 10.5% and 10% interest rate, respectively. Both notes are
secured by the same collateral . The senior note matures on December 8, 2003. No
payment is due on the junior note until the senior note is fully paid. Both
notes are subordinated to any new financing that might be required by the
Company.
As a result of the Company's Chapter 11 filing and in conjunction with the
development of a plan of reorganization, the Company discontinued the
operations of the NL Corporation division located in Cleveland, Ohio and its
remaining recessed lighting business.
The Company, as a result of the approved plan of reorganization, is now
comprised of the wholly owned subsidiary Self-Powered Ligthing, Inc.; the 87
1/2% owned Aim Energy, Inc. (see description of business) and the 100% owned
subsidiary, Prolite Lighting and Sign Maintenance Co., Inc. (an inactive
corporation).
At December 31, 1998, approximately 67% of the Company's common stock was
owned by Susan Barnes.
(b) Financial information about industry segments:
Prior to the approval of the Company's plan of reorganization, the
Company's business was in two business segments: (i) manufacturing and sale of
electrical lighting fixture including emergency exit signs, and (ii) energy
management. Financial information by industry segment for the Company is
presented in the financial statements accompanying this report. Currently as a
result of the approved plan of reorganization, the Company's business is now in
two business segments: (I) emergency lighting fixtures, and (ii) energy
conservation and safety equipment.
(c) Narrative description of business
EMERGENCY LIGHTING FIXTURES
1. Products
Through its wholly-owned subsidiary, Self Powered Lighting, Inc., the
Company is engaged in the manufacture and distribution of specialized emergency
and exit lighting fixtures. SPL offers two types of exit signs:
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(1) low energy electrical
(2) no energy (self luminous) - represents approximately 75% of total sales
Generally, SPL sells through a sales representative network. In-house sales
orders are handled by SPL's own internal marketing staff.
2. Manufacturing and Suppliers
At December 31, 1998, the Company's manufacturing facility for SPL products
is located in West Nyack, New York. SPL's primary raw material vendor is located
in England. The 1996 Chapter 11 filing of the Company and SPL had the effect of
causing difficulty in maintaining its credit terms with all vendors. However, in
1996, after a period of sourcing raw materials on a cash basis, SPL has been
able to re-establish credit terms with it's primary vendor and a majority of its
domestic vendors. Most finished products are supplied by a foreign manufacturer
located in the Republic of China and paid, generally, on a letter of credit
basis.
3. Working Capital Items
SPL maintained sufficient raw materials to sustain its manufacturing
operations. Finished goods are generally purchased to support existing backlog.
However, its ability to respond quickly to customer orders are somewhat hampered
by its limited working capital. This sometimes resulted in lost revenues. SPL
has in place a receivable factoring line of credit in the amount of $500,000
which it believes is sufficient for working capital purposes at the present time
but will require additional funding if its plan of operations and increasing
backlog is sustained. The Company is considering raising needed funds from the
equity market to settle promptly its chapter 11 obligations and to provide for
additional working capital.
4. Customers
During 1998, 1997 and 1996, SPL had no sales to a single customer which
totalled more than 10% of their total sales respectively. During 1998, SPL
obtained a "sole-source" agreement with Catalina Lighting Company (a NYSE
company) to supply its entire emergency and exit lighting requirements under the
Westinghouse brand name for resale to major home improvement chains. This source
of business is expected to increase over the next 2-5 years.
5. Seasonality and Backlog
SPL has no substantial seasonal factors that affect it's emergency lighting
fixture business. SPL's backlog at December 31, 1998 and December 31, 1997
totaled approximately $650,000 and $550,000 , respectively, which is anticipated
to be shipped over the next 12 months. The increase in backlog at December 1998
is the result of increased sales representations, aggressive marketing and
orders emanating from the Catalina Lighting sales arrangement .
6. Competition
SPL is one of two manufacturers that supply emergency signs to the airline
industry. SPL is also one of four companies that manufacture and distribute self
luminous exit signs.
7. Research and Development
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SPL has not expended and does not require significant funds for development
of new products.
8. Patents, Trademarks and Licenses
SPL has patents in place on certain of its products.
9. Environmental Matters
SPL uses Tritium, a regulated raw material, in the manufacture of its self
luminous products. Tritium is a low energy isotope of hydrogen that emits a soft
beta ray. Tritium is naturally present in the atmosphere as a result of cosmic
ray bombardment of oxygen and nitrogen in the upper atmosphere as well as outer
space. Tritium Oxide is the regulated element in Tritium gas and would have to
be ingested for hours to be considered mildly dangerous. Tritium used in exit
signs is 96% pure and contains less than 1% Tritium Oxide. There have been no
reported incidents (harmful to either man or the environment) due to acute
exposure to Tritium. The Company employs a radiation safety officer who oversees
the Company's use of Tritium and sees to it that the Company complies with the
appropriate regulations. No additional capital expenditure is required by the
Company to comply with regulations.
10. Employees
At December 31, 1998 and 1997, SPL employed 21 and 25 employees,
respectively at locations in West Nyack, NY and California.
ENERGY CONSERVATION AND SAFETY EQUIPMENT BUSINESS - During 1998 the Company
operated it's energy conservation and safety equipment business through its 87
1/2% owned subsidiary, Aim Energy, Inc.
1. Products and services
The "Active Injection Mode Harmonic Conditioner" (the AIM Filter) is an
electronic device which mitigates or cancels harmonic current distortion, also
called Total Harmonic Distortion (THD). Harmonics waste energy, increase
electrical bills, overheat wires and equipment, create interference, cause
computers and computer controlled equipment to malfunction and interferes with
telecommunications. Harmonics can require expensive rewiring to avoid
overheating of wires and possible fires. Harmonics are an increasingly serious
hazard due to the greater use of devices to improve energy efficiency and the
rapid expansion in the use of computers and computer related equipment.
Harmonics. Alternating current (AC) is now universally used to deliver power in
electric power systems. AC power is known as "alternating" because the flow of
current is continuously reversing; positive current in any one wire becomes
negative current and vice versa. This happens 60 times per second in the United
States, Canada and Mexico and hence is called "60 cycle" power. Ideally, this
alternation occurs smoothly and continuously, e.g., from positive 110 volts to
negative 110 volts. If pictured on a graph (or oscilloscope), the alternation of
current forms a smooth "sine wave" and thus the current is known as
"sinusoidal". The flow of current is not smooth and continuous when there is
harmonic distortion of current. Harmonic distortion of current causes voltage
harmonics, i.e., increases or decreases in voltage from that which would conform
to a smooth sine wave.
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Equipment such as computers, electronic ballasts (used by fluorescent lights),
welding equipment, battery chargers, motor speed control devices such as
variable speed drives ("VSDs"), and uninterruptible power supplies ("UPSs") all
use utility current to run an electronic power converter. The power converter
changes the normal AC power supplied by the utility into direct current ("DC")
(and in some cases back to the AC power) used by the machines. Power converters
draw current in pulses, and the effect of each pulse is to generate harmonic
distortion in the current carried by the wire. When harmonics from different
sources are in synchronization, the effect is amplified.
Problems Caused by Harmonics. Current harmonics waste energy, requiring
increased generation capacity and fuel use. Harmonics can cause computer shut
downs, tripped circuit breakers, overloading of electric equipment, failure of
electronic parts, premature failure of insulation on electrical wires
("conductors"), reduction in capacity of the large conductors and the useful
output of power generators and serious reduction in the operating life of
electrical motors.
Computers and computer controlled equipment must have essentially sinusoidal or
"clean" voltage to operate. Voltage harmonics can cause a computer to "crash",
resulting in lost data and reduced productivity. In addition telecommunications
equipment is now generally controlled by computers sensitive to harmonics,
telecommunications equipment can also suffer interference from harmonics,
degrading the quality of the signal. Medical equipment, such as computer
controlled monitors, CAT scanners, magnetic resonance imagers (MRI), and x-ray
equipment can also malfunction because of harmonics.
Building wiring and transformers can suffer overheating and premature aging in
the presence of harmonics. A problem found in large office buildings is a build
up of current on the neutral conductor of three phase systems. While these
conductors ideally would have no current flow at all, harmonics may cause them
to carry a current substantially in excess of the current on any other
conductor. This current can overheat the wire, requiring rewiring to prevent
electrical fires. As a result, building owners may expend substantial sums to
rewire or require tenants to limit or reduce the harmonics they create in order
to protect the building wiring and the integrity of other tenants' power supply.
Harmonics also cause transformers serving a building or a particular portion of
the building to overheat, and heavier duty, more expensive harmonic resistant
transformers ("x-rated transformers") are now required where harmonics are
anticipated.
Uninterruptible power supplies ("UPSs") are used to protect computers and
important equipment from power failure. Each UPS contributes harmonics because
of its AC/DC power converter, while at the same time supplying power to
equipment sensitive to harmonics. Thus, the UPS may require harmonic filtering
to limit the harmonics it creates in the building and protective circuits to
protect it against harmonics from other sources. In addition, harmonic filtering
may be necessary for successful synchronization of the UPS power supply and the
line power supply which is required for redundancy. A similar problem exists
with respect to standby emergency generators, which may be unable to operate in
a building with large harmonics due to an inability of the small generators to
generate sufficient current and/or an inability to synchronize with other power
sources (utility power or UPS power).
Harmonics also cause problems for utilities. Harmonics travel through the power
line to utility equipment, such as switches, transformers and the nearest
generators, potentially damaging such utility equipment. The utility must limit
harmonics on the line to serve their customers and protect their own equipment.
In addition, harmonics require larger conductors and generation capacity to
supply the power needed to do a given amount of useful work.
As an additional benefit, the AIM Filters also provide substantial power factor
correction. "Power factor" is the ratio of the watts of electricity consumed to
volt-amps on the circuit, expressed as a ratio. Thus, if a traditional
electricity meter indicates 80 watts consumed, but the utility is supplying 1
amp of power at 100 volts, or 100 volt-amps, the power factor would be .8.
Several United States
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utility companies have begun implementing surcharges for large customers with
low power factors to recover the cost of supplying the larger volt-amps required
by the customer. These surcharges are a material part of electric bills for
large customers with low power factors. The AIM Filter increases the power
factor, thus reducing the surcharge (in some cases the power factor is corrected
to a level where the user actually qualifies for a reduced KWH rate charge);
this may provide an additional cost justification for installation of such
filters. However, it should be noted that in many if not most installations, the
traditional alternative approach of adding power factor correction capacitors
and equipment may be adequate, and the AIM Filter must compete with these
approaches as a means of power factor correction.
The problems of harmonics are receiving growing attention worlwide. The
Institute for Electrical and Electronics Engineers, a principal standard setting
body for the industry, has promulgated its latest standard, IEEE 519-1992
Recommended Practice and Requirements for Harmonic Control in Electric Power
Systems, replacing a 1981 version. The new standard sets a limit on harmonics to
a maximum of 5% on total harmonic distortion of current ("TCD"), i.e., harmonic
variations in current, and 5% total harmonic distortion of voltage ("TVD").
While IEEE 519-1992 is a professional standard for electrical engineers, and
thus does not have the force of law, it is deemed to set the standard of care
for the profession and thus result in potential liability if a professional
authorizes a deviation therefrom and that deviation causes a loss. Compliance
with this or other similar standards may become required by law on a
state-by-state and country-by-country basis for new installations. In addition,
the standard may be adopted by utilities. For example, SaskPower, a Canadian
utility, requires compliance with this standard at the time of any change in the
utility connection.
Methods to Solve the Harmonics Problem. Several methods other than active
injection mode harmonic conditioners (such as the AIM Filters) are currently
used to mitigate the problem of harmonics. These include: passive filters,
zig-zag and phase shift transformers, and complex, higher order multiphase
rectifiers (e.g., 12 pulse, 18 pulse, 24 pulse, etc.). There are serious
limitations to the competing products and approaches.
Passive filters are the traditional approach. They must be designed for the
specific harmonic problem, often at significant engineering cost, and are thus
inflexible. In a dynamic environment, such as that caused by installation of new
VSD, UPS and computer equipment, harmonic distortion changes, and passive
filters will likely fail to mitigate harmonics and may even create resonance
problems due to interference of the filters with each other or other equipment.
This causes significant operational limitations. Thus, when used to address
harmonics in a building or other electrical environment, passive filters are
costly to design, time consuming to implement, and likely to require expensive
changes over time. Passive filters may be designed to mitigate the harmonics
caused by a particular device more easily, and this is the most common approach
to preventing harmonic problems. However, this fails to address harmonics from
other sources and there can be interference which defeats the filtering.
Zig-zag transformers and phase shift transformers are also used to reduce
harmonics. The installation of phase shift transformers in existing
installations may require extensive and expensive rewiring to balance loads, and
both types of transformers add additional power dissipation to the system.
Improved AC-DC converters using higher-order multiphase rectification can be
used to reduce the distortion generated by specific pieces of equipment. These
prevent only the particular pieces of equipment from causing a problem-they do
not protect the rectifier or the system itself from harmonics from other
sources.
Management believes the AIM Filters are superior to these alternative methods
because they can mitigate harmonics in existing installations without
necessitating extensive engineering studies or changes in the equipment. The AIM
Filters can adapt to changing harmonic conditions, and they are
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comparatively simple and inexpensive to use. The AIM Filters are connected in
parallel with the existing AC power supply, meaning that failure of an AIM
Filter will not interrupt the power supply.
The Company is currently marketing AIM Filters for three types of applications:
(1) three phase, three wire balanced loads; (2) three phase, four wire
unbalanced loads; and (3) single phase loads.
AIM Filters for three phase, three wire loads are suitable for use with products
such as VSDs, including both AC and DC motor speed controls, and are compatible
with other balanced loads, such as UPSs, fluorescent lighting ballasts,
mainframe computers and ultraviolet lighting. The AIM Filters in this category
handle voltages of 208, 240, 400, 480, 600 volts and provide currents of up to
25, 50 or 100 amps. Over 200 of the three phase, three wire AIM Filters have
been installed to date, including models in each of the five listed voltage
configurations.
The Mean Time Between Failure (MTBF) which is the industry standard for product
reliability, is in excess of 10 years for an AIM device. An MTBF greater than 10
years is considered to be excellent by industry standard.
2. Marketing
The first models of the AIM Filters are designed for use in the commercial,
industrial, and public utility sectors to install in water/sewage treatment and
other large facilities using VSD controlled motors; and office building and
institutions with significant use of VSDs, computers, UPSs, or energy saving
illumination. The AIM Filters can be used either in existing installations with
harmonic problems or in connection with installation of new devices which are
likely to cause harmonic problems, or can be sold together with (or incorporated
into) specific products which are likely to cause harmonics.
One of the first focuses of AIM marketing has been to sell AIM Filters to those
organizations installing VSDs and UPSs in either existing facilities or new
facilities. The initial models of the AIM Filters are suitable to control the
harmonics caused by many types of VSDs and UPSs, and subsequent models will be
suitable for all but the largest VSDs and UPSs.
Installation of VSDs in existing buildings reduces electric consumption by 30%
to 50% of the electricity used by motors in elevators, fans, and HVAC. The
Company estimates that the expense of adding a VSD can be recovered quickly,
making the change highly cost-effective. The harmonics caused by VSD
installation may be unacceptable without harmonic filtering, and approaches to
harmonic filtering other than the AIM Filter have serious drawbacks. Thus, the
Company will market AIM Filters as a simple and cost effective way of using
VSDs, allowing recovery of the VSD cost savings. Even with the cost of the AIM
Filters, the Company believes that the cost of the VSD and filter can generally
be recovered in less than three years.
AIM has entered into representation agreements with independent companies which
sell and service VSDs and UPSs. These agreements generally are (but not always)
exclusive within a territory. The distributor buys and sells in his own name and
for his own account. He acts as an independent trader in regards to both the
Company and the customers without thereby being authorized to act in the name of
or on behalf of the Company or otherwise to bind the Company. AIM may contract
with one or more stocking distributors who may purchase the filters for resale.
In each case, the local representative will have local servicing
responsibilities for the products. In addition, AIM will retain the right to
sell directly to "national accounts" in territories serviced by a distributor,
but will pay the representative a reduced fee to supply local service. In areas
in which there are no distributors, AIM will market the filters directly. AIM
presently has eighteen (18) sales representatives covering the United States,
Canada, Japan, Australia and Europe. Plans are underway to add representatives.
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AIM has also entered into a license and joint marketing venture with Shindengen
Corporation, a Japanese power supply company, in March 1998 for the purpose of
exploiting the Japanese and other Asian markets. The agreement with Shindengen
calls for delivery of fifty (50) AIM Filters which at December 31, 1998 AIM has
delivered 44 units.
3. Backlog
AIM has backlog of unfilled orders at December 31, 1998 of approximately
$200,000. Backlog as of December 31,1997 totalled approximately $100,000. The
backlog in 1997 and prior year is not significant due to the limited marketing
activities for the product.
4. Working Capital Items
AIM maintains a very limited parts inventory on hand due to its limited
resources in 1998 and 1997. Parts are purchased from suppliers on a COD basis.
This arrangement was a result of the bankruptcy filing of Helionetics, Inc., its
previous parent company. Virtually no finished goods are maintained and products
are built when orders are received from customers. AIM finances its customers
orders by requiring a partial payment (generally 25%) from customers. These
advances are deducted later on from shipments to the customers. AIM offers
discounts for early payments of its receivables thereby improving its liquidity.
5. Patents and Licenses
AIM has two patents relating to the AIM Filters. While the Company believes
that the technology included in the patents significantly reduces the cost of
production and improves the performance of active harmonic filters as compared
to competitors' products, the patents will not prevent the development of other
active harmonic filters or other methods of dealing with or preventing
harmonics, and it is possible that competing products or approaches may have a
competitive advantage.
6. Research and Development (and other Product Improvement Activities)
The Company intends to improve its existing AIM products through a cost
reduction program. In addition to reducing its manufacturing cost, this project
will have the added benefit of reducing the size of the AIM products and thereby
improving its marketability. The Company will continue to offer the original
version of its AIM products to customers. The Company believes that with this
program it will be the only company, world-wide, who can offer to the market
place all versions of active harmonic mitigation products. The Company estimates
this market to be in the $300-500 million range and growing annually at the
estimated rate of 35% per year. The Company estimates that it will need $250,000
to complete its initial cost reduction program. As part of the on-going effort
to improve quality of its product line, AIM has further scheduled a size/cost
reduction program. This program when completed will enable the Company to
address many more applications which the existing product line currently cannot
address due to cost and size restrictions. These additional lines of AIM devices
are scheduled to enter the market place in early 2001. The Company also
anticipates this program to contribute to the Company's revenue and
profitability due to the presence of the extended product lines.
7. Employees
AIM currently has 6 employees. It employs a consultant for its engineering
and other technical requirements. AIM plans on hiring additional engineering,
sales and marketing staff in 1999.
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Discontinued Operations
As a result of the Chapter 11 filing in February 1996, the Company
discontinued and liquidated all of its operations, except for SPL.
The principal products and services of the discontinued operations were as
follows: (a) lighting fixtures, which involves designing, sourcing,
manufacturing and marketing of recessed lighting, track lighting and decorative
lighting and (b) electrical energy management, which involves auditing,
retrofitting, maintaining and managing lighting in order to reduce energy
consumption used for lighting of industrial and commercial buildings. The
electrical management business operated through Prolite Lighting and Sign
Maintenance Co., Inc. and its subsidiary. The remaining subsidiaries (Allite,
Inc., Trio California, Inc., Trio Lighting, Inc., and NL Corporation) comprised
the lighting fixture division.
Revenues for 1996 of these discontinued operations were $5,509,800.
Item 2. Properties
At December 31. 1998, the Company leased the following properties:
(a) Corporate offices and warehouse of SPL California operations - a
single industrial building with approximately 15,400 square ft. and
annual rent of $74,064. The lease expiration is December 1, 2002.
(b) Manufacturing plant and offices of SPL in New York - a 14,000 sq. ft.
single industrial building with annual rental of $63,000 for the first
year ending May 1995; $70,000 for the second, third and fourth year;
$73,060 for the fifth, sixth and seventh year and $76,300 for the
eight, ninth and tenth year, which will expire May 2005.
Item 3. Legal Proceedings
Other than ordinary routine litigation incidental to the business, the Company
and its subsidiaries are not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of the Security Holders
None were submitted to security holders for a vote in 1998.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) In conjunction with the Company's plan of reorganization, the Company's
equity was recapitalized. The reorganized company issued effective 1998 new
Tri-Lite Common Stock to satisfy the requirements of Section 6.6 of the plan.
The plan called for issuance of 12.5% of the Company's new common stock of
4,000,000 shares, or 500,000 shares, to the existing shareholders holding
3,069,332 shares. As of March 31, 1999, there is no established public trading
market for the Company's stock. The Company had filed with NASD in March 1999
for clearance of quotations of its new common stock on the OTC Bulletin Board.
(b) At March 31, 1999, there were approximately 3,450 holders of the
Company's common stock.
(c) The Company presently intends to retain future earnings, if any, to
provide funds for use in the operation and expansion of its businesses.
Accordingly, the Company does not anticipate paying cash dividends on its common
stock in the near future.
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Item 6. Selected Financial Data
The following tables summarize certain selected financial data for the periods
presented for the Company on a consolidated basis. The data for the years ended
December 31, 1998, 1997 and 1996 should be read in conjunction with the more
detailed audited consolidated financial statements for such years presented
elsewhere herein.
Income Statement Data
<TABLE>
<CAPTION>
December 31
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1998 1997 1996 1995 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,450,000 $ 5,084,800 $ 8,047,000 $ 22,947,500 $19,865,000
Income (Loss) from
Continuing operations $ (49,500) $ (974,900) $(4,212,700) $(11,640,100) $(2,441,000)
Discontinued operations -- $ -- $ -- $ (1,447,700) $(1,610,000)
Extraordinary item -- 576,300 -- -- --
Income(Loss) Per Share $ (0.01) $ (0.10) $ (0.70) $ (2.17) $ (1.06)
Cash Dividends Per Share N/A N/A N/A N/A N/A
Balance Sheet Data
Total Assets $ 1,549,100 $ 1,363,200 $ 2,375,900 $ 6,166,900 $19,507,000
Long Term Obligations:
Due to Parent $ -- $ -- $ 1,866,500 $ 1,980,000 $ 6,175,000
Other Long Term Debt $ 1,866,000 $ 1,866,000 $ -- $ 3,365,100 $ 106,000
Liabilites Subject
to Compromise $ 5,721,600 $ 5,721,600 $ 6,148,300 -- --
Stockholders Equity
(Deficit) $(8,172,600) $(8,441,700) $(9,011,400) $(22,099,300) $ 5,055,800
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company operated with uncertainty in its two business segments in 1998
brought about by the Chapter 11 proceeding of Helionetics, Inc., a co-proponent
of the Company's plan of reorganization. The Helionetics liquidating plan
together with the settlement agreement between the parties was approved by the
U.S. Bankruptcy Court on December 23, 1998 and had the effect of lifting the
uncertainties surrounding the Company's ability to operate.
The Company's overall financial condition during 1997 and 1996 has changed
significantly as a result of the Company's filing for protection under chapter
11 of the Bankruptcy Code in February 1996. The filing was the direct result
from the decision by Star Bank to roll up and terminate the Company's line of
credit in January 1996.
Liquidity and Capital Resources
For essentially all of 1996, the Company operated as a debtor in possession
and was liquidating its Prolite subsidiary under the direction of a court
appointed receiver. Proceeds from the Prolite liquidation were used to pay down
the Star Bank loan. Additionally, almost all activities were directed to the
reduction of the Star Bank loan balance which was completed in early December
1996. A receivable financing facility was obtained with a financial institution
in December 1996 which essentially funded the remaining operations of the
Company, namely SPL and the Allite operations for the year of 1997. The
receivable financing, however, had very onerous provisions in terms of interest
rate and other factoring cost. In June 1998, SPL replaced its receivable
financing facility by entering into a financing agreement with another
institution on more favorable terms. The new financing agreement requires SPL to
pay the prime rate of interest, as defined, plus 6% on advances equal to 80% of
its eligible account receivables. AIM Energy, Inc. operated from its own limited
resources. In 1998 its liquidity was provided partly by the $270,000 net
proceeds from its license agreement with Shindengen Electric Manufacturing
Company, Ltd. (Shindengen) consummated in March 1998. Its liquidity for the year
of 1997 was provided, in part, from occasional loans from Ms. Susan Barnes. In
addition, advances were required in 1998 and 1997 from most of its customer
orders which enabled AIM to purchase required parts. These sources of liquidity,
while helpful, naturally hampered the efficient operation of AIM.
Working capital was a deficit in 1998, 1997, and 1996, of $762,500,
$1,231,800, and $1,433,600, respectively. 1998 working capital improved from
1997 was caused by the combined increase in receivables and inventories of
$301,700 and decreased accounts payable of $282,900. In 1997 and 1996, the
deficit was a direct result of decreased receivables and inventories of $876,000
and $3,411,000, respectively which was caused by the Chapter 11 proceedings.
Payables and accrued expenses decreased by $638,000 and $3,213,000 in 1997 and
1996. In 1997, pre-petition trade accounts payable did not change significantly
due to the Chapter 11 proceedings which stayed all pre-petition liabilities. A
significant accrued liability relates to the bankruptcy proceedings, primarily
administrative cost.
The funding for the Company's plan of reorganization which was approved on
January 16, 1997 was partly provided by Ms. Susan Barnes contribution of
$426,737. This amount was used to fund the first payment to the unsecured
creditors. The remaining balance due to unsecured creditors were funded by the
Helionetics liquidating plan (primarily from proceeds of sale of shares of Laser
Photonics, Inc. pursuant to the collateral pledge agreement between the Company
and Helionetics). As part of the settlement agreement, a senior secured
promissory note of $800,000 was issued by the Company in favor of the Committee
of the Unsecured Creditors of Helionetics in addition to a subordinated junior
promissory note of $500,000 in favor of Ms. Susan Barnes. Both the senior and
junior note carried the same collateral base. The final distribution to
unsecured creditors of the Company will be dependent upon the final resolution
of the Helionetics Chapter 11 proceedings.
13
<PAGE>
No substantial capital expenditures were made in 1998 and 1997; and there
are none anticipated in 1999 except for the $250,000 requirement by AIM for its
initial cost reduction program.
The Company's liquidity needs continued to be provided by its own internal
operations, however, the Company will be needing additional working capital to
fund the increasing backlog for both SPL and AIM and the cost reduction programs
for AIM products.
Results of Operations -
1998 vs 1997
Revenues were $4,450,000 and $5,085,000 for the year ended December 31,
1998 and 1997, respectively. During 1997, the operations of the Company included
three quarters of the year for AIM. It also included approximately $1,425,000
revenues of the discontinued lighting fixtures division. AIM's revenue
contribution in 1998 of $820,000 (an increase of approximately $479,000 from
1997) included approximately $92,000 (out of a total of $300,000 to be earned
over 5 years) of revenues relating to the sale to Shindengen of the right and
license to design, manufacture and sell the AIM products in Japan and Asia. The
agreement calls for payment to AIM of a 4% royalty for sales of AIM products by
Shindengen and an initial order of 50 AIM units. At December 31, 1998 a total of
44 units were shipped to Shindengen amounting to approximately $499,000.
AIM expects to receive its UL (Underwriter Laboratories) approval on its
AIM products by the second quarter of 1999, which will allow AIM to sell its
product in the U.S. AIM currently holds a CE Mark (an electrical approval
authority in the common market equivalent to UL in the U.S.A.) on its AIM
products that enables it to market and sell its AIM products in Europe.
SPL's revenues for 1998 and 1997 amounted to $3,630,000 and $3,318,000,
respectively. The increase of approximately $312,000 was the result of its
increased marketing activities and, while still in its early stage, from its
sales arrangement with Catalina Lighting.
The combined cost of sales in 1998 was 46% compared with 67% in 1997.
Excluding the effect in gross margin of the discontinued lighting fixtures
division in 1997, cost of sales was 56% in 1997. The improved combined gross
margin in 1998 reflects the favorable effect in margins of the revenue
contribution of AIM.
Selling, general and administrative expenses, as a percent of sales, were
50% in 1998 and 47% in 1997. In absolute dollars, 1998 expenses are $2,248,000
or $165,000 lower than in 1997. The decrease was attributed to the elimination
of expenses of the discontinued lighting fixture division. Reorganization items
decreased in 1998 due to the confirmation of the Company's plan of
reorganization in 1997 and the subsequent confirmation in December 1998 of the
Helionetics' liquidating plan.
Interest expense in 1998 of approximately $94,000 included $63,000 relating
to SPL's obligation to its creditors as required by its plan of reorganization.
1997 vs 1996
Revenues for the year ended December 31, 1997 were $5,085,000, a decline of
37% from the 1996 revenues of $8,047,000. The decrease in 1997 revenues was
primarily a reflection of the Chapter 11 proceedings.
14
<PAGE>
The loss from continuing operations for 1997 and 1996 amounted to $974,800
and $4,212,700, respectively. During 1997 the operations of the Company were
comprised mostly of SPL and three quarters of the year for AIM. The 1997
combined gross margin of approximately 33% was unfavorably affected by the
margin contribution of the discontinued lighting fixtures division. Excluding
the effect of such discontinued division, gross margin was approximately 44%
compared to 32% in 1996.
Selling, general and administrative expenses, as a percent of sales were
47% and 48% for 1997 and 1996, respectively. The unusually high percentage of
expenses in 1996 was the result of the Chapter 11 bankruptcy filing. 1996
expenses included chapter 11 administrative cost of approximately $1 million,
accrual for employment contracts allowed as unsecured claims ($983,000), and
write off of receivable from NL de Mexico ($529,000).
Interest expense of $302,000 in 1996 was the result of the Star Bank loan
which was fully paid off in December 1996.
Included in 1997 income was the gain on chapter 11 proceedings of $576,300
as a result of the gain recognized on the initial payment to the unsecured
creditors.
The profitability in 1997, while improved, continued to be impacted by the
chapter 11 proceedings specifically in the areas of chapter 11 administrative
cost and the higher cost charged by the receivable financing facility. The
Company anticipated an improved profitability in 1998. The improvement will be
attributed to: lower interest (factoring) cost as a result of a new receivable
financing facility obtained in June 1998; consolidation of AIM's full year of
operations in 1998 which will reflect the favorable effect in results of
operations of the Shindengen agreement; the effect of cost savings implemented
at SPL and reduced chapter 11 administrative cost.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Istruments and Hedging Activities". This statement is effective for
fiscal years beginning after June 15, 1999. Earlier application is encouraged;
however, the Company does not anticipate adopting SFAS No. 133 until the fiscal
year beginning January 1, 2000. SFAS No. 133 requires that an entity recognize
all derivatives as assets or liabilities in the statement of financial position
and measure those instruments at fair value. The Company does not believe the
adoption of SFAS No. 133 will have a material impact on assets, liabilities or
equity. The Company has not yet determined the impact of SFAS No. 133 on the
income statement or the impact on comprehensive income.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement benefits" and SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Sesuritization of Mortgage Loans Held for Sale by
a Mortgage banking Enterpirse" were issued in 1998 and are not expected to
impact the Company regarding future financial statement disclosures, results of
operations and financial position.
Seasonality and Effect of Inflation. The Company's business is not subject
to seasonal changes due to the high-technology nature of its AIM products. SPL's
products are used primarily by the aircraft and building construction industries
whose revenues are dictated by its customers requirements.
Year 2000 Problem
15
<PAGE>
The Company has reviewed its operations as it relates to the Year 2000
issues. The effect on the Company's operations of the Year 2000 issues are
minimal. SPL products do not utilize parts or processes that the Year 2000
issues need to address. AIM's products are analog based and therefore have no
Year 2000 issues. An estimated capital expenditures of approximately
$25,000-$30,000 however, will be required to update the Company's computer
hardware, network and management systems to make it Year 2000 compliant.
Implementation of these changes is anticipated to occur in the second quarter of
1999.
For vendors and suppliers, the Company believes, while assurance cannot be
made, that its sources of materials and parts will not be affected by the Year
2000 problems. Important suppliers of the Company's manufacturing needs and
customers are either major or fairly large corporations which we believe would
be in compliance of the Year 2000. In addition, the Company will consider
keeping ample inventories of its most critical parts. The Company is also
keeping records of hard copies of its vendors and customers informational
documents.
Item 7 (a). Quantitative and Qualitative Disclosures About Market Risk.
The Company does not have any market risk sensitive instruments at December
31, 1998.
Item 8. Financial Statements and Supplementary Data
The financial statements prepared in accordance with Regulation S-X are set
forth beginning on page F-1 hereof.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The names and ages of the directors and executive officers of the Company
as of March 31, 1999 are as follows:
Name Age @ 12/98 Position
---- ----------- --------
E. Maxwell Malone 61 Director, President and
Chief Executive Officer
Jack Katz 39 Director, President & CEO, Self-Powered
Lighting, Inc.
Ernest Dageford 64 Director, President & CEO,
Aim Energy, Inc.
Adrian Cayetano 54 Director and Principal Accounting
Officer
Fred de Boom 62 Director
The directors shall serve until the next annual meeting of shareholders or
until their successors are elected. Background information on the Company's
current Directors and Officers is as follows:
E. Maxwell Malone - is currently President and Chief Executive Officer of
the Company since October 1997. He is currently the President and Director of
Helionetics, Inc. since 1990. Helionetics, Inc. filed for protection under
Chapter 11 of the U.S. Bankruptcy Code in April 1997; and its Liquidating Plan
was approved in December 1998. Mr. Malone was a founder and, from its inception
in August 1987, through June 1989, Chairman of the Board, President and Chief
Executive Officer of Bristol Research, a manufacturer of primary processing
boards for personal computers. Mr. Malone served as President of Pick Systems
Corporation and Pencor International Corp., two computer software firms. Mr.
Malone was a co-founder of Microdata Corporation, a manufacturer of computer
systems acquired by McDonnell Douglas Corporation in 1978. Prior to that, Mr.
Malone was also a senior programmer for Lockheed Missiles & Space corporation
and Control Data Corporation as well as an instructor of Applied Statistics at
Southern Illinois University.
Jack Katz has served as President of Self-Powered Lighting since 1996. He
served as a director of the Company since April 1997. Mr. Katz has been in the
lighting business for over ten years and had served as Regional Vice President
of Catalina Lighting, Inc., a NYSE company, from November 1995 till September
1996. He was President of Allite, Inc., a subsidiary of the Company, from
January 1993 to November 1995.
Ernest Dageford - Mr. Dageford served as President and Chief Executive
Officer of Aim Energy, Inc. since 1992. He has been a Vice President of Energy
Resource Group of JWP in New York from 1986 to 1992. From 1976 to 1986, Mr.
Dageford was an owner and President of Climatron, Inc., a developer and
manufacturer of computerized controls to monitor and control industrial
commercial buildings. Climatron subsequently was sold to JWP of New York. Prior
to 1976, Mr. Dageford served in various project engineering capacity with
several electronics companies in the areas of power quality. Mr. Dageford'
educational background is in Physics and Electronics and did graduate work in
Plasma Physics.
17
<PAGE>
Adrian Cayetano - Mr. Cayetano was a consultant of the Company since
November 1997 and served as Director and Principal Accounting Officer beginning
in December 1998. He served as Controller of Helionetics, Inc. from May 1990 to
August 1996. Helionetics, Inc. filed for protection under Chapter 11 of the U.S.
Bankruptcy Code in April 1997 and obtained approval of its Liquidating Plan in
December 1998. Mr. Cayetano is a Certified Public Accountant in California and a
member of the California Society of Certified Public Accountants. He worked as
an auditor with Pricewaterhouse International in Manila, Philippines for five
years until 1972. Mr. Cayetano holds a degree in Business Administration with a
major in Accounting and had one year graduate studies work in business.
Fred de Boom - Mr. De Boom was elected as a director in January 1999. He is
currently a pricipal of Sonfad Associates, an investment banking services
company specializing in corporate finance services for middle market companies,
since 1994. Prior to that, Mr. De Boom was a Senior lending officer at Tokai
Bank for about 10 years. Mr. De Boom had over 30 years experience with 3 leading
commercial banks as a commercial lending specialist. He has a degree in business
from Michigan State University and holds an MBA from the University of Southern
California.
18
<PAGE>
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted Securities All Other
and Compen- Stock Underlying LTIP Compen-
Principal sation Awards Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)
- --------- ---- --------- -------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C>
E. Maxwell Malone
CEO 1998 24,000 (4)
1997 24,000
<CAPTION>
A. Alvin Katz
<S> <C> <C> <C> <C>
CEO 1996 120,000(1) 6,000(3)
<CAPTION>
Jack Katz
President, Self Powered Lighting
<S> <C> <C> <C> <C>
1998 106,600 6,000(3) (4)
1997 96,000 6,000(3)
1996 88,000 6,000(3)
<CAPTION>
Ernest Dageford
President, Aim Energy, Inc.
<S> <C> <C> <C> <C>
1998 131,880 (4)
1997 125,000
<CAPTION>
Adrian Cayetano
Principal Accounting Officer
<S> <C> <C> <C> <C>
1998 21,000 (4)
</TABLE>
(1) Served as CEO from 1/1/95 to 7/15/95 and from 2/15/96 to July 1997.
(2) The Company also reimburses all reasonable, ordinary and necessary business
expenses.
(3) Represents car allowance paid.
(4) Shares of common stock were issued to the following directors and officers:
E. Maxwell Malone 100,000 shares
Jack Katz 300,000 shares
Ernest Dageford 200,000 shares
Adrian Cayetano 75,000 shares
19
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership
as of March 31, 1999, of the Company's common stock, by any person who is known
to the Company to be the beneficial owner of more than five percent of the
Company's voting securities and by each director and by officers and directors
of the Company as a group.
Name and address of Amount and nature Percent
beneficial owner of beneficial ownership of class
- ------------------- ----------------------- ---------
Susan E. Barnes
6626 W. 6th Street
Los Angeles, California 90024 3,300,000 shares 67.0%
Jack Katz*
2701 Junipero Street
Signal Hill, California 90806 300,000 shares 6.1%
E. Maxwell Malone 100,000 shares 2.0%
Ernest Dageford 200,000 shares 4.1%
Adrian Cayetano 75,000 shares 1.5%
All current directors and officers
as a group 675,000 shares 13.7%
* This address also applies to all persons listed.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with management and others:
As of December 31, 1997, the Company owed Helionetics, Inc., it's former
principal shareholder, $1,866,500 on a note payable including interest at 10%.
Helionetics cancelled and released its claim against the note as part of the
Company's plan of reorganization.
As of December 31, 1996, 1997 and 1998, the Company owed Richard B.
Barnett, Senior VP - Marketing from July 15, 1995 to February 28, 1996, $195,000
on a note payable. This note and accrued interest has been settled in
conjunction with the Company's plan of reorganization for $180,000.
Ms. Susan Barnes, as co-proponent of the Company's plan of reorganization,
received 82.5% of the newly issued common stock of the Company. In addition,
pursuant to the settlement agreement between the Committee of the Unsecured
Creditors of Helionetics and Ms.Barnes, the Company issued a junior subordinated
secured promissory note of $500,000 with interest of 10% in favor of Ms. Barnes.
Regardless of any payment terms set forth in the junior note, in no event shall
the junior note to Ms. Barnes oblige the Company to pay until such time as all
principal, interest and others sums payable to the Senior Note of $800,000 have
been fully satisfied.
Ms. Barnes had loaned the Company from 1996 to 1998 a total of
approximately $248,400 and at December 31, 1998 had an outstanding loan to the
Company of $95,991 excluding interest.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedules.
(1) The following financial statements of Tri-Lite, Inc.and Subsidiaries
are included in Item 8:
Consolidated Balance Sheets--December 31, 1998 and 1997
Consolidated Statements of Operations--For the Years Ended December
31, 1998, 1997 and 1996
Consolidated Statement of Stockholder's Equity(Deficit)--For the
period from January 1, 1996 through December 31, 1998
Consolidated Statements of Cash Flows--For the Years Ended December
31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Schedule II - Valuation and qualifying accounts
(3) Exhibits - None
(b) Reports on Form 8-K--None was filed in 1998.
(c) Exhibits--License Agreement between AIM Energy, Inc. and Shindengen Electric
Mfg. Co., Ltd. dated February 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on it's
behalf by the undersigned, thereunto duly authorized.
TRI-LITE, INC.
By: \S\ E. Maxwell Malone Date: April 23, 1999
---------------------
E. Maxwell Malone
President and Chief Executive Officer
By: \S\ Adrian Cayetano Date: April 23, 1999
---------------------
Adrian Cayetano
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: \S\ E. Maxwell Malone Date: April 23, 1999
---------------------
E. Maxwell Malone, President, Chief Executive
Officer, Principal Executive Officer
By: \S\ Adrian O. Cayetano Date: April 23, 1999
----------------------
Adrian O. Cayetano, Director,
Principal Accounting Officer
By: \S\ Jack Katz Date: April 23, 1999
-------------
Jack Katz, Director
By: \S\ Ernest Dageford Date: April 23, 1999
-------------------
Ernest Dageford, Director
By: \S\ Fred de Boom Date: April 23, 1999
----------------
Fred de Boom, Director
22
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
SCHEDULE II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
YEAR ENDED Period Expenses Accounts Deductions Period
---------- ------------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts-trade 47,059 17,423 -- 40,061 (1) 24,421
Reserve for inventory obsolescence 55,975 -- -- 7,949 (2) 48,026
Year ended December 31, 1997:
Allowance for doubtful accounts-trade 327,244 26,329 -- 306,514 (1) 47,059
Reserve for inventory obsolescence 371,915 -- -- 315,940 (2) 55,975
Year ended December 31, 1996:
Allowance for doubtful accounts-trade 286,943 31,305 -- (8,996)(1) 327,244
Reserve for inventory obsolescence 1,444,152 115,585 -- 1,187,822 (2) 371,915
</TABLE>
(1) Use of allowance in write-off of scheduled bad debts
(2) Use of allowance in write-off of obsolete inventories
23
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the Years Ended
December 31, 1998, 1997 and 1996
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report................................................F-2
Consolidated Balance Sheets - December 31, 1998 and 1997....................F-3
Consolidated Statements of Operations - For the Years Ended
December 31, 1998, 1997 and 1996.......................................F-4
Consolidated Statement of Stockholders' Equity (Deficit) - For the
Period from January 1, 1996 through December 31, 1998......................F-5
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1998, 1997 and 1996.......................................F-6
Notes to Consolidated Financial Statements..................................F-8
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Tri-Lite, Inc. and Subsidiaries
Signal Hill, California
We have audited the consolidated balance sheets of Tri-Lite, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of Tri-Lite, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Our audit referred to above includes audits of the financial statement schedule
listed under Item 14(a)(2) of Form 10-K. In our opinion, the financial statement
schedule presents fairly, in all material respects, in relation to the financial
statements taken as a whole, the information required to be stated therein.
/s/HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
April 15, 1999
F-2
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 22,594 $ 83,970
Accounts receivable - trade, less allowance
for doubtful accounts of $24,421 and $47,059 in
1998 and 1997, respectively 561,579 529,428
Inventories, net 587,300 317,771
Prepaid expenses and other 39,246 34,412
Note receivable - Officer 2,500 20,000
------------ ------------
Total current assets 1,213,219 985,581
------------ ------------
PROPERTY AND EQUIPMENT:
Machinery and equipment 1,210,127 1,178,885
Leasehold improvements 338,152 344,724
------------ ------------
1,548,279 1,523,609
Less accumulated depreciation and
amortization (1,360,882) (1,277,565)
------------ ------------
Net property and equipment 187,397 246,044
OTHER ASSETS 148,477 131,604
------------ ------------
TOTAL ASSETS $ 1,549,093 $ 1,363,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,536,574 $ 1,769,502
Notes payable and long-term debt - current portion 343,226 305,242
Note payable - related party 95,991 142,668
------------ ------------
Total current liabilities 1,975,791 2,217,412
LONG-TERM LIABILITIES:
Liabilities Subject to Compromise 5,721,602 5,721,602
Notes payable and long-term debt - less current portion 565,962 565,962
Note payable to Helionetics Inc., Official
Committee of Unsecured Creditors 800,000 800,000
Note payable, related party 500,000 500,000
------------ ------------
Total liabilities 9,563,355 9,804,976
------------ ------------
Deferred Income 158,333 --
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 9) -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 25,000,000
shares authorized, 4,928,948 and
4,000,000 shares issued and outstanding at
December 31, 1998 and 1997 11,973,048 11,813,346
Contributed capital 1,127,290 968,335
Accumulated deficit (21,272,933) (21,223,428)
------------ ------------
Total stockholders' equity (deficit) (8,172,595) (8,441,747)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,549,093 $ 1,363,229
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES $ 4,450,019 $ 5,084,837 $ 8,047,095
COST OF REVENUES 2,054,012 3,429,895 5,444,776
----------- ----------- -----------
Gross profit 2,396,007 1,654,942 2,602,319
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 2,247,799 2,412,791 3,835,635
ENGINEERING AND PRODUCT DEVELOPMENT 71,183 -- --
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 77,025 (757,849) (1,233,316)
OTHER (INCOME) EXPENSES:
Interest expense 94,028 37,199 302,002
Other (7,578) (14,237) 307,345
----------- ----------- -----------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS,
PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM (9,425) (780,811) (1,842,663)
Reorganization items (Note 4) 12,913 194,063 2,370,025
----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (22,338) (974,874) (4,212,688)
PROVISION FOR INCOME TAXES 27,167 -- --
----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (49,505) (974,874) (4,212,688)
EXTRAORDINARY ITEM - gain from debt
Reduction associated with Chapter 11
Proceedings, net of income taxes of $ -0- -- 576,264 --
----------- ----------- -----------
NET INCOME (LOSS) $ (49,505) $ (398,610) $(4,212,688)
=========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE:
Income (Loss) before extraordinary item $ (0.01) $ (.24) $ (.70)
Extraordinary item -- .14 --
----------- ----------- -----------
Net income (loss) $ (0.01) $ (.10) $ (.70)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,070,395 4,000,000 6,039,333
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCKHOLDERS'
----------------------------- CONTRIBUTED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 $ 6,039,333 $ 11,813,346 -- $(16,612,130) $ (4,798,784)
Net loss -- -- -- (4,212,688) (4,212,688)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1996 6,039,333 11,813,346 -- (20,824,818) (9,011,472)
Elimination of old stockholders
interests (6,039,333) -- -- -- --
Issuance of new shares 4,000,000 -- -- -- --
Capital Contribution -- -- 426,739 -- 426,739
Net debt forgiveness between
related parties -- -- 541,596 -- 541,596
Net income (loss) -- -- -- (398,610) (398,610)
------------ ------------ ------------ ------------ ------------
BALANCES, December 31, 1997 4,000,000 11,813,346 968,335 (21,223,428) (8,441,747)
Issuances of shares for services 916,723 159,702 -- -- 159,702
Contribution by Helionetics -- -- 158,955 -- 158,955
Issuances of shares to Helionetics
Committee of unsecured creditors 12,225 -- -- -- --
Net income (loss) -- -- -- (49,505) (49,505)
------------ ------------ ------------ ------------ ------------
BALANCES, DECEMBER 31, 1998 $ 4,928,948 $ 11,973,048 $ 1,127,290 $(21,272,933) $ (8,172,595)
============ ============ ============ ============ ============
</TABLE>
(continued)
F-5
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (49,505) $ (974,874) $(4,212,688)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 55,662 56,689 237,447
Loss due to impairment of long lived
assets -- 37,400 319,264
Services paid through the issuance of
common stock 73,980 -- --
Bad debt expense (22,638) 26,329 40,301
Inventory reserve (7,949) (315,940) (1,072,237)
Gain on Reorganization -- 1,117,860 --
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Accounts receivable 7,986 824,491 1,467,344
Inventories (261,580) 648,013 3,277,704
Prepaid expenses and other (20,667) 43,357 (71,079)
Accounts payable and accrued
expenses (10,594) (1,162,532) 2,650,893
Deferred income 208,333 -- --
Liabilities subject to compromise -- (426,739) --
----------- ----------- -----------
Net cash provided by (used in) operating
activities (26,972) (125,946) 2,636,949
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment $ (24,670) $ (19,904) --
Other (1,041) -- --
----------- ----------- -----------
Net cash (used in) investing activities $ (25,711) $ (19,904) --
----------- ----------- -----------
</TABLE>
(continued)
F-6
<PAGE>
TRI-LITE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net $ 12,126 $ -- $ --
Payments on line of credit -- (424,365) (3,074,554)
Proceeds from the issuance of notes payable 25,858 -- 729,607
Principal payments on notes payable -- -- (230,660)
Payments on note payable to related party (46,677) -- 37,051
Net borrowings from related party -- 87,320 --
Net proceeds from capital contribution -- 426,739 --
----------- ----------- -----------
Net cash provided by (used in) financing
activities (8,693) 89,694 (2,538,556)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (61,376) (56,156) 98,393
CASH AND CASH EQUIVALENTS, at beginning of
year 83,970 140,126 41,733
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of year $ 22,594 $ 83,970 $ 140,126
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 19,497 $ 15,256 $ 302,002
=========== =========== ===========
Taxes $ 3,600 $ -- $ --
=========== =========== ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of note payable to Helionetics: $ -- $(1,800,000) $ --
=========== =========== ===========
Issuance of notes payable to:
Helionetics, Inc. Official Committee of
unsecured creditors $ -- $ 800,000 $ --
Ms. Susan Barnes $ -- $ 500,000 $ --
----------- ----------- -----------
$ -- $ 1,300,000 $ --
=========== =========== ===========
Conversion of SPL accounts payable to note
payable $ -- $ 565,962 $ --
=========== =========== ===========
Issuance of common stock to employee and
consultants $ 159,702 $ -- $ --
=========== =========== ===========
Contribution by Helionetics for Chapter 11
administrative cost $ 158,955 $ -- $ --
=========== =========== ===========
F-7
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS:
General - Tri-Lite, Inc. and its subsidiaries (the "Company") manufacture
and distribute emergency electrical lighting fixtures for commercial and
residential use and energy conservation and safety equipment for retail and
commercial facilities. As of December 31, 1998, Tri-Lite, Inc. (Tri-Lite)
has two wholly owned subsidiaries, Self Powered Lighting, Inc. (SPL), and
Prolite Lighting and Sign Maintenance Co., Inc. (Prolite), and an 87.5%
owned subsidiary, AIM Energy, Inc.
On February 15, 1996, the Company's primary lender, Star Bank demanded
payment in full of the Company's credit facility by February 20, 1996 as a
result of certain loan provision defaults which had not been cured. On
February 23, 1996, the Court of Common Pleas, Cuyahoga County, Ohio granted
Star Bank an emergency order appointing a receiver to collect and remit to
Star Bank all collections on accounts receivable of the Company. In
response, on February 26, 1996, Tri-Lite filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code with the U.S. Bankruptcy
Court, Central District of California. At the time of the Bankruptcy
Filing, Helionetics, Inc. owned approximately 49 percent of Tri-Lite.
Additionally, as of that date, Susan Barnes was the Beneficial owner or
controlled 37.6 percent of Helionetics, Inc. Due to the above described
actions of Star Bank, SPL filed its own voluntary petition under Chapter 11
of the United States Bankruptcy Code with the U.S. Bankruptcy Court,
Central District of California on March 22, 1996.
Under Chapter 11, certain claims against a Company in existence prior to
the filing of the petition for relief under the federal bankruptcy laws are
stayed while the Company continues business operations as a
Debtor-in-possession. These claims are reflected in the December 31, 1998
and 1997, Balance Sheet as "Liabilities Subject to Compromise." Claims
against the Company's assets which are secured against the Companies assets
("secured claims") are also stayed, although the holders of such claims
have the right to move the court for relief from the stay. Secured claims
are secured primarily by liens on the Company's property and equipment.
On January 16, 1997, the Bankruptcy Court approved the Tri-Lite Plan of
Reorganization with Helionetics, Inc. and Susan Barnes as co-proponents of
the plan. In April 1997, Helionetics, Inc filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code with the U.S. Bankruptcy
Court, Central District of California. As a result, the funding of the
Company's reorganization plan was combined with that of Helionetics, Inc.
The Helionetics Bankruptcy Plan, which included the provisions and
methodology to fund the Tri-Lite plan, were approved by the US Bankruptcy
Court on December 23, 1998. Provisions of the Combined Plan include the
following:
o Under the plan, the Company issued 4,000,000 "new shares", replacing
all pre-petition common shares, with 82.5% of its "new" Tri-Lite
common stock going to Ms. Susan Barnes in exchange for her agreement
to forgo any claims on her approximately $4.3 million secured claim
against Helionetics, Inc.
o The shareholders of record immediately prior to the bankruptcy filing
of the Company will receive 12.5% of the "new" Tri-Lite common stock.
o The Helionetics, Inc. Official Committee of Unsecured Creditors
("Helionetics Committee") will receive 5% of the "new" Tri-Lite common
stock.
F-8
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o Helionetics, or Ms. Susan Barnes at her sole option, will pay the
unsecured creditors of Tri-lite, Inc, up to 47% of their allowed
claims in cash. The actual disbursement is subject to the finalized
Helionetics Bankruptcy Plan.
o Helionetics, Inc. forgave its $1,800,000 note receivable and related
accrued interest due from the Company.
o Tri-Lite issued two interest bearing notes payable to Helionetics,
Inc. Official Committee of Unsecured Creditors ($800,000) and to Susan
Barnes ($500,000). Since such transaction occurred between related
parties, the effect of the issuance's of these notes, net of the debt
forgiven as described immediately above, is reflected as a credit to
contributed capital in the accompanying Statement of Stockholders'
Equity (Deficit).
o Helionetics, Inc. tendered its holdings of AIM Energy, Inc. to the
Company and this transaction has been recorded as a reorganization of
entities under common control. The Company received no assets or
liabilities in its acquisition of AIM. Additionally, AIM had
insignificant operations prior to its acquisition.
In March 1997, the court approved the Reorganization of SPL. Under the
provisions of the Plan, all creditors will receive 100% of their allowed
claims, with interest, within 60 months of the plan's effective date and
Tri-Lite will retain its interest in SPL.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly-owned and partially-owned
subsidiaries. All material intercompany accounts and transactions have been
eliminated.
Accounts Receivable and Concentration of Credit Risk - Credit Risk
represents the accounting loss that would be recognized at the reporting
date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off the balance sheet) that
arises from financial instruments, exist for groups of customers or groups
of counterparties when they have similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions described below.
The Company sells predominately to retail companies and to commercial and
industrial companies. Approximately 60% of the Company's SPL subsidiary's
revenues are derived from the Airline industry in the United States. The
Company performs periodic credit evaluations of its customers and does not
require collateral. The Company maintains allowances for potential credit
losses and such losses have been within management's expectations.
F-9
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories - Inventories are valued at the lower of cost (first-in,
first-out) or market. At December 31, 1998 and 1997, inventories consist of
the following:
1998 1997
--------- ---------
Raw materials and component parts $ 299,323 $ 354,879
Work-in-process 58,653 18,867
Finished goods 277,350 --
--------- ---------
635,326 373,746
Allowance for obsolescence (48,026) (55,975)
--------- ---------
$ 587,300 $ 317,771
========= =========
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization is computed over the estimated useful lives
of the assets or the remaining terms of the leases using the straight-line
method.
Useful lives for property and equipment are as follows:
Machinery and equipment 3 to 12 years
Leasehold improvements 5 years or life of lease, whichever is less
Income Taxes - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
Revenue Recognition - Revenue for product sales is recognized upon
shipment. The Company records a provision for the effect of anticipated
returned products at the time units are shipped.
Product Development Expenditures - Product development expenditures are
charged to operations as incurred.
Warranties - The Company recognizes the full estimated cost of warranty
expense when incurred.
Earnings Per Share - The Company follows Statement of Financial Accounting
Standards No. 128 when calculating earnings per share. Basic earnings per
share excludes dilution and is calculated by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. There were no common stock equivalents for the years ended
December 31, 1998, 1997 and 1996.
F-10
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Statement of Cash Flows - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and the accompanying notes. The actual
results could differ from those estimates.
The Company's financial statements are based upon a number of significant
estimates, including the allowance for doubtful accounts, technological
obsolescence of inventories, the estimated useful lives selected for
property and equipment, realizability of deferred tax assets and goodwill,
allowance for sales returns, and warranty reserve. Due to the uncertainties
inherent in the estimation process, it is at least reasonably possible that
these estimates will be further revised in the near term and such revisions
could be material.
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
As a result of its net losses and petition for relief under Chapter 11, the
Company consolidated its manufacturing and warehouse operations and
eliminated unprofitable products. Certain leasehold improvements and
machinery and equipment were abandoned or disposed of. These assets were
written down to their net realizable value upon disposal. A write down of
$91,812 is included in re-organization items in the accompanying Statements
of Operations as of December 31, 1996.
Stock-Based Compensation - The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB25) and related interpretations in accounting for its employee stock
options. In accordance with FASB Statement No. 123 "Accounting For Stock
Based Compensation" (FASB123), the Company will disclose the impact of
adopting the fair value accounting of employee stock options. Transactions
in equity instruments with non-employees for goods or services have been
accounted for using the fair value method prescribed by FASB123.
Fair Value of Financial Instruments - The estimated fair values for
financial instruments under SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and
cannot be determined with precision. The estimated fair values of the
Company's financial instruments, which includes all cash, accounts
receivable, accounts payable, and long-term debt, approximates the carrying
value in the consolidated financial statements at December 31, 1998 and
1997.
Impact of Recently Issued Accounting Standards - In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities". This statement is effective for fiscal
years beginning after June 15, 1999. Earlier application is encouraged;
however, the Company does not anticipate adopting SFAS No. 133 until the
fiscal year beginning January 1, 2000. SFAS No. 133 requires than an entity
recognize all derivatives as assets or liabilities in the statement of
financial position and measure
F-11
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
those instruments at fair value. The Company does not believe the adoption
of SFAS No. 133 will have a material impact on assets, liabilities or
equity. The Company has not yet determined the impact of SFAS No. 133 on
the income statement or the impact on comprehensive income.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" and SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage banking Enterprise" were issued in 1998 and are not
expected to impact the Company's future financial statement disclosures,
results of operations and financial position.
3. BASIS OF PRESENTATION:
AICPA Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP No. 90-7") allows certain
companies to adopt a "fresh-start" method of accounting if the
reorganization value ("approximate fair value") of the assets of the
Company immediately before confirmation of the Plan was less than the total
of all post-petition liabilities and allowed pre-petition claims, and
holders of the existing voting shares immediately before the confirmation
of the Plan would receive less than 50% of the voting shares of the
emerging company. Management believes that since pre-confirmation
stockholders (or their affiliates or control persons) received in excess of
50% of the "new" Tri-Lite Common Shares after emerging from bankruptcy,
fresh start accounting is not applicable.
The financial statements have been prepared on a going concern basis, which
contemplates, among other things, the realization of assets and the
satisfaction of liabilities in the normal course of business. However,
there is doubt about the Company's ability to continue as a going concern
because of the magnitude of its losses; of its stockholders' deficit of
$8,172,595 and its working capital deficit of $762,572 as of December 31,
1998. The Company's continued existence is dependent upon its ability to
raise substantial capital, to increase sales and to significantly improve
operations.
Management has taken many actions in response to these conditions.
Management believes that operations and product offerings have been
consolidated sufficiently to generate operating profits and cash flows.
Management has also negotiated new credit facilities which will improve the
Company's ability to finance working capital requirements. Management
believes that these actions will allow the Company to continue as a going
concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount
and classification of liabilities or any other adjustment that might be
necessary should the Company be unable to continue as a going concern.
F-12
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. REORGANIZATION ITEMS:
The effects of transactions and adjustments related to reorganization
activities were as follows:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
----------- ----------- -----------
Impairment recognized on long-lived
assets $ -- $ -- $ 1,305,874
Professional fees 12,913 194,063 1,064,151
----------- ----------- -----------
Total reorganization items $ 12,913 $ 194,063 $ 2,370,025
=========== =========== ===========
5. DISCONTINUED OPERATIONS:
As the result of the Chapter 11 filing in February 1996, the Company
discontinued and liquidated all of it's lighting fixtures operations that
involved designing, sourcing, manufacturing and marketing recessed
lighting, track lighting, and decorative lighting. The results of operation
are included in the basic financial statements because these operation did
not constitute a separate segment.
As of December 31, 1996, all related assets and liabilities of the lighting
fixture businesses were written off and included in the results from
continuing operations for the period then ended. Losses for the year ending
December 31, 1996 related to these activities were as follows:
Revenue $ 5,685,434
-----------------
Expenses:
Cost of sales 4,133,137
Selling, general and administrative 5,415,885
Interest and other expense 606,311
-----------------
Total Expenses 10,155,333
-----------------
Loss before provision for income
taxes $ (4,469,899)
=================
6. NOTE PAYABLE TO RELATED PARTIES:
Pursuant to the Helionetics bankruptcy proceedings, the Helionetics, Inc.
Official Committee of Unsecured Creditors ("Helionetics Committee") entered
into a settlement agreement with the Company, Ms. Susan Barnes and her
affiliates, and Bernard B. Katz, whereby 82.5% of Company's then issued and
outstanding common shares would be issued to Ms. Susan Barnes, and 5% would
be issued to the Helionetics Committee. Accordingly, Helionetics canceled
and released its $1,800,000 promissory note secured by all the assets of
the Company. In addition, the Company issued a senior secured promissory
note in the amount of $800,000 in favor of the Helionetics Committee and a
secured junior subordinated promissory note in the amount of $500,000 in
favor of Ms. Susan Barnes. Both notes will bear interest
F-13
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at 10.5% and 10%, respectively, and are subordinated to any new financing
that the Company may require. The senior note is payable in installments of
$7,318 per month for a period of five years, with a final balloon payment
in December 2003. No payment can be made on the junior note until the
senior note is paid in full. Ms. Barnes loaned the Company in 1997 and 1998
a total of approximately $248,400. At December 31, 1998, such loan had an
outstanding balance of $95,991. The loan bears interest at the prime rate
plus 2% and is due on demand.
7. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt at December 31, 1998 and 1997
consisted of the following:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Payable to Self-Powered Lighting creditors, due in
Installments of $226,384 in January 2000; $113,192 in 2001;
$113,192 in 2002; $133,194 in 2003, bearing interest at the
bank's prime rate plus 2%(9.75% at December 31, 1998) $ 565,962 $ 565,962
Advances from Altres Financial for accounts receivable
factored at a discount rate of 1.5% plus related service fees -- 305,242
Advances from FC Commercial for an accounts receivable
purchasing facility at a base fee of the prime rate plus 6%
(13.75% at December 31, 1998) 317,368 --
Installment contract payable at 9.15% interest at $2,873 per
month 25,858 --
------------ ------------
909,188 871,204
Less: Current portion (343,226) (305,242)
------------ ------------
Total notes payable and long-term debt, less current portion $ 565,962 $ 565,962
------------ ------------
Future annual maturities of notes payable and long-term debt
as of December 31, 1998 are as follows:
1999 $ 343,226
2000 $ 226,384
2001 $ 113,192
2002 $ 113,192
2003 $ 113,194
------------
$ 909,188
============
</TABLE>
F-14
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 1996, the Company entered into an agreement with Altres
Financial to factor up to $1,000,000 in accounts receivable, $200,000
minimum per month, at a discount of 20%. The company is entitled to a
rebate of the commissions less 1.25% of the amount factored plus 0.35% for
every ten days past 30 days an account is outstanding, a daily funds
charges equal to prime plus 1% dividend by 360 and a monthly collateral fee
of 0.25%. The factor may also maintain a reserve of 5% of the outstanding
balance on accounts factored. In June 1998 the company paid-off Altres
Financial and entered into a receivable purchasing facility with FC
Commercial for $500,000, $200,000 minimum purchases per month at a base fee
of 6% plus prime rate. As of December 31, 1998, the face amount of
receivables factored was $425,276.
9. LIABILITIES SUBJECT TO COMPROMISE:
Liabilities subject to compromise as of December 31, 1998 and 1997 consists
of the following:
Trade payables and accrued expenses $ 3,520,776
Taxes 291,775
Commissions 257,765
Other expenses 338,025
Note payable 180,000
Claims under rejected executory 1,133,261
--------------
Total $ 5,721,602
==============
9. COMMITMENTS AND CONTINGENCIES:
Leases - The Company leases its facilities and certain equipment under
non-cancelable operating leases expiring at various dates through 2005.
Future annual minimum rental commitments in the aggregate under these
non-cancelable operating leases are as follows:
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
1999 $ 156,049
2000 162,370
2001 169,300
2002 163,170
2003 76,300
Thereafter 108,092
----------
$ 835,281
==========
Total rental expense related to all operating leases amounted to $153,796,
$235,827 and $408,480 in 1998, 1997 and 1996, respectively.
F-15
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation - In the ordinary course of business, there are various claims
and lawsuits brought by or against the Company. In the opinion of
management, the ultimate outcome of these matters will not materially
affect the Company's operations or financial position.
Helionetics is a defendant in class actions seeking unspecified damages
allegedly resulting from the purported violation of federal securities
laws. In the opinion of Company management, the ultimate outcome of these
actions will not have any impact on the Company's consolidated financial
statements.
Employment Contracts - The Company had entered into employment agreements
with several officers of the Company. These agreements were voided by the
Bankruptcy Court. The Company has accrued the amounts allowed by the
Bankruptcy Court under these agreements as of December 31, 1996.
10. INCOME TAXES:
Income tax expense for the years ended December 31, 1998, 1997 and 1996 is
comprised of the following:
1998 1997 1996
---- ---- ----
Current
Federal $ - $ - $ -
State 18,000 - -
Foreign Tax 9,167 - -
---------- ------------ ------------
27,167 - -
---------- ------------ ------------
Deferred
Federal - - -
State - - -
---------- ------------ ------------
- - -
---------- ------------ ------------
$ 27,167 $ - $ -
========== ============ ============
Income tax expense (benefit) for the years ended December 31, 1998, 1997,
and 1996 differed from the amount computed by applying the U.S. Federal
income tax rate of 34% for each period as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
Expense (benefit) $ (7,595) (34.0)% $ (135,527) (34.0%) $(1,585,683) (34.0)%
Nondeductible expenses 1,020 4.6% -- 0.0% -- 0.0%
Change in the beginning-of-
the-year balance of the
Valuation allowance for
Deferred tax assets 6,575 29.4% 135,527 34.0% 1,585,683 34.0%
State taxes 18,000 80.6% -- 0.0% -- 0.0%
Foreign Tax 9,167 41.0% -- 0.0% -- 0.0%
---------------- -------------------- ---------------------
$ 27,167 121.6% $ -- 0.0% $ -- 0.0%
================ ==================== =====================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred taxes at December 31, 1998 and 1997 are presented
below:
F-16
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current deferred tax assets (liabilities):
Accounts receivable due to allowance for
doubtful accounts $ 9,802 $ 18,889
Inventories due to allowance for
obsolescence 19,277 22,467
Compensated absences, principally due to
accrual for financial reporting
purposes 44,525 49,361
Accrued expenses, principally due to
accrual for financial reporting
purposes 816,117 810,952
Write-down of assets for book not tax 128,874 128,874
Other 8,041 4,027
----------- -----------
1,026,636 1,034,570
Less valuation allowance (1,026,636) (1,034,570)
----------- -----------
Net current deferred tax assets $ -- $ --
Long-term deferred tax assets (liabilities):
Asset acquisition basis adjustment (130,848) (130,848)
Depreciation and amortization 24,828 (27,268)
Net operating loss carry forwards 6,975,043 6,951,789
----------- -----------
6,869,023 6,793,673
Less valuation allowance (6,869,023) (6,793,673)
----------- -----------
Net long-term deferred tax assets $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company had net operating loss carry forwards
for federal and state purposes of approximately $19,758,000 and $2,768,000,
respectively, which expire in 2018 and 2003. The benefit of the net
operating losses to offset future taxable income is subject to reduction or
limitation of use as a result of consolidated return filing regulations and
additional limitations relating to a greater than 50% change in ownership.
The change in the valuation allowance for the year ended December 31, 1998
and 1997 was $67,416 and $108,724, respectively.
11. SEGMENT INFORMATION:
During the year ended December 31, 1996 the Company operated only in one
industry segment, the lighting fixture business segment.
F-17
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 1998 and 1997 the Company operated again
in two industry segments, as follows:
1. The lighting fixture business segment
2. The energy conservation and safety equipment business segment
Identifiable assets by industry are those assets that are used in the
Company's operations in each industry. Corporate assets are, principally,
cash and cash equivalents.
Information concerning the Company's operations and related information in
its two different industry segments for the year ended December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
Energy
Conservation and
1998 Lighting Fixture Safety Equipment
- ---- Business Segment Business Segment Total
---------------- ---------------- -----
<S> <C> <C> <C>
Revenues from external
Customers $ 3,629,946 $ 820,073 $ 4,450,019
Intersegment revenues -- -- --
Interest revenue $ 2,491 -- $ 2,491
Interest expense $ 94,028 -- $ 94,028
Net interest revenue (expense) $ (91,537) -- $ (91,537)
Depreciation and amortization $ 53,996 $ 1,666 $ 55,662
Segment profit $ 238,905 $ (125,547) $ 113,358
Other significant non-cash items:
Cost in excess of billings on
long-term contracts -- -- --
Segment assets $ 1,417,920 $ 131,173 $ 1,549,093
Expenditures for segment assets $ 15,187 $ 9,483 $ 24,670
<CAPTION>
Energy
Conservation and
1997 Lighting Fixture Safety Equipment
- ---- Business Segment Business Segment Total
---------------- ---------------- -----
<S> <C> <C> <C>
Revenues from external
Customers $ 4,743,521 $ 341,316 $ 5,084,837
Intersegment revenues -- -- --
Interest revenue -- -- --
Interest expense $ 37,199 -- $ 37,199
Net interest revenue (expense) $ (37,199) -- $ (37,199)
Depreciation and amortization $ 56,689 -- $ 56,689
Segment profit $ (906,273) $ (45,639) $ (951,912)
</TABLE>
F-18
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C>
Other significant non-cash items:
Cost in excess of billings on
Long-terms contracts -- -- --
Segment assets $ 1,301,405 $ 61,824 $ 1,363,229
Expenditures for segment assets $ 19,904 -- $ 19,904
</TABLE>
Segment profit is total revenue less operating expenses, none of the following
items has been added or deducted: general corporate expenses; dividend,
interest, and miscellaneous income; interest expense; income tax; and
extraordinary item.
F-19
<PAGE>
TRI-LITE, INC AND SUBSIDIARIES.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------------------------------------------------- -------------- ------------ ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Allowance for doubtful accounts - trade $ 47,059 $ 17,423 $ - $ 40,061 (1) $ 24,421
Reserve for inventory obsolescence 55,975 - - 7,949 (2) 48,026
YEAR ENDED DECEMBER 31, 1997:
Allowance for doubtful accounts - trade 327,244 26,329 - 306,514 (1) 47,059
Reserve for inventory obsolescence 371,915 - - 315,940 (2) 55,975
YEAR ENDED DECEMBER 31, 1996:
Allowance for doubtful accounts - trade 286,943 31,305 - (8,996)(1) 327,244
Reserve for inventory obsolescence 1,444,152 115,585 - 1,187,822 (2) 371,915
</TABLE>
(1) Use of allowance in write-off of scheduled bad debts
(2) Use of allowance in write-off of obsolete inventories
F-20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,594
<SECURITIES> 0
<RECEIVABLES> 586,000
<ALLOWANCES> (24,421)
<INVENTORY> 587,300
<CURRENT-ASSETS> 1,213,219
<PP&E> 1,548,279
<DEPRECIATION> (1,360,882)
<TOTAL-ASSETS> 1,549,093
<CURRENT-LIABILITIES> 1,975,791
<BONDS> 0
0
0
<COMMON> 11,973,048
<OTHER-SE> 1,127,290
<TOTAL-LIABILITY-AND-EQUITY> 1,549,093
<SALES> 4,450,019
<TOTAL-REVENUES> 4,450,019
<CGS> 2,054,012
<TOTAL-COSTS> 2,054,012
<OTHER-EXPENSES> 2,331,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,028
<INCOME-PRETAX> (22,338)
<INCOME-TAX> 27,167
<INCOME-CONTINUING> (49,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,505)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0.00
</TABLE>
